Mondher Sahli

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Economic Explanation of Net Benefits of Tourism Growth to the Community 17/06/2005 Mondher Sahli & Jean-Jacques Nowak

Presentation outline: 

Presentation outline Introduction I - Meaning of sustainable tourism II- Tourism economic evaluations: old and new approaches III- General equilibrium modelling in tourism Conclusion

I- Meaning of Sustainable Tourism: 

I- Meaning of Sustainable Tourism Achieving sustainable tourism requires that: Tourism development is planned and managed so that it does not generate serious environmental or socio-cultural problems in the destination. The economic benefits from tourism are WIDELY SPREAD throughout the residents of the host community.

Objectives: 

Objectives Examine how an inbound tourism boom could make developing countries residents’ worse off. Explain how a tourism boom can affect the key economic variables.

Critiques commonly advanced in the literature: 

Critiques commonly advanced in the literature Environmental and socio-cultural costs Economic costs : ONLY leakages and, to lesser extent, inflation.

II- Tourism economic evaluations: 

Dominant techniques used to assess the economic impacts of tourism : * multiplier analysis * input-output models II- Tourism economic evaluations

Traditional Economic Approach: 

Traditional Economic Approach Any increase in tourism will look good Nothing said about negative costs elsewhere in the economy BUT Negative effects could be just as large as the positive and, in certain cases, even larger

What is wrong with traditional techniques?: 

What is wrong with traditional techniques? Resources (labor, capital and land) flow freely to the tourism sector Prices of goods, services and factors of production often fixed

In reality : 

In reality Economies = general equilibrium systems with sectoral interactions Limited Resources Prices not always fixed Any measures of a tourism shock (boom) must take into account the negative as well as the positive impacts.

New Approach: General equilibrium model: 

New Approach: General equilibrium model This approach is quite recent in tourism analysis and has been applied in both theoretical and empirical studies : Theoretical studies: Copeland 1991; Nowak and Sahli (1999, 2003); Hazari and Kaur 1995; Hazari and Sgro 2004; Hazari and Sahli 2005. Empirical studies: Adams and Parmenter 1995; Zhou et al 1997; Dwyer et al. (2000, 2004, 2005); Blake et al. 2003; Gooroochurn and Sinclair 2005.

New Approach: General Equilibrium Model: 

New Approach: General Equilibrium Model This technique models : - market for goods and services - factors of production - consumer spending - external constraints - links between sectors

III- Example of general equilibrium modelling in tourism : 

III- Example of general equilibrium modelling in tourism Structure of the model Consequences of a tourism boom: main results

III-1 Main assumptions: 

III-1 Main assumptions H1- Rivalry between tourism and agriculture for land and labor H2- Harris-Todaro structure of the labor market

Model Structure: 

Model Structure

H1- Rivalry between tourism and agriculture: 

H1- Rivalry between tourism and agriculture Competition between agriculture and tourism for land and labor Relevant for some kinds of leisure tourism : Coastal tourist destinations (“sun, sea and sand” holidays) and inland areas (golf courses, oases, national parks….)

H2: Harris-Todaro Structure: 

H2: Harris-Todaro Structure In the urban region: wage rate is fixed at a level higher than the competitive one (unions, respected legislation…)  unemployment In the coastal/natural region: flexible wage rate (small hotels are predominant in the tourism sector).  Full-employment of labor

Migration Flows: 

Migration Flows _ If Wc > Wue, then migration from the city to the coast _ If Wc < Wue, then migration from the coast to the city

III-2-Impacts of an inbound tourism shock: 

III-2-Impacts of an inbound tourism shock with DES : foreign tourists’ demand for the tourism sector PS : Tourism price Δ : parameter that captures exogenous factors like the real income or tastes of international tourists; special events (World Cup, Olympic Games, …); SARS; war; disaster…..

Impacts of an inbound tourism boom: 

Impacts of an inbound tourism boom Price increase of tourism products Expansion of tourism production Decline of agriculture production Labor Migration between the two zones Net total benefit of tourism to the community (+) or ( –) If (+) : welfare gain to the resident community If (–) : welfare loss WHY????

Variation of the domestic welfare: net total benefit : 

Variation of the domestic welfare: net total benefit

Variation of the domestic welfare: 

Variation of the domestic welfare

Two situations: 

Two situations Case 1: tourism is relatively more land intensive than agriculture Case 2: tourism is relatively more labor intensive than agriculture

Two Situations: 

Two Situations

Conclusions: 

Conclusions General equilibrium approach has a major implications for the way that tourism researchers must assess the net total benefit of tourism to the community Empirical studies using Computable GE models have recently been undertaken in several countries

Conclusions: 

Conclusions They support our theoretical results, which show that CGE economic contribution of tourism is much more modest than based on input-output analysis

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